Does iPhone "manual backup" in iTunes use encryption?
Yes, since the check box is selected, the local backup is encrypted and includes your Health data. The backup will use the same password you provided for the last backup, so won't ask you again this backup.

This is a very poor UI: even though you're not performing an automatic backup, the box is still used when performing a manual backup. You can verify the contents of a backup using an app such as iBackupBot.