It's normally a $500 upgrade as you stated:
Model X HEPA Air Filtration Upgrade
And while 3rd party filters are available, it won't get your software updated to allow the vents and louvers to activate appropriately.
HEPA is the filter grade. Bio mode is the software enablement.
It sounds like he's exercising his right for a goodwill discount because he thinks somethings might be amiss since he hasn't seen it before. The reality is that a VERY small percentage of cars are actually missing the filter. The filter became standard starting with build dates of 07/2017.
Meaning a little over one year of Model Xs didn't have them standard. Even in that year, it was still an option for part of the year; and came standard on all performance models for a portion of the year. Throw on top of that all of the cars that were upgraded - some paid and some out of goodwill - on a production year that was already pretty low and the result is a very limited number of cars that will appear to be "missing" that filter.
Nothing is wrong with your car. If they offered it to me for $300, I'd take it in a heartbeat. They're giving it to you at replacement cost with free software instead of the upgrade cost.