As it says on the Arriva website (
www.arrivabus.co.uk/greenline/green-line-tickets), concessionary travel is free when boarding in London or Hertfordshire. Boarding elsewhere means a discounted fare must be paid.
In this case it is nothing to do with where you travel to, but everything to do with where you board.
The local authority where the passenger boards pays the bus operator for accepting the concessionary travel pass, regardless of which council issues the pass or where the passenger is travelling to.
It is likely that Arriva managed to reach an agreement to he reimbursed for accepting concessionary passes with both Transport for London and Hertfordshire County Council, but Luton Council did not agree therefore passengers boarding in their area have to pay a reduced fare. It’s likely that the reduced fare is a commercial incentive by Arriva and isn’t subsidised by the council.