Just confirmed with Apple that if you set up as new you will lose all your health data...what a terrible update! Rendered my once perfect watch useless in a crap update.
Health data is stored in the cloud.
Here's what your Apple Watch backup includes
App-specific data (for built-in apps) and settings (for built-in and third-party apps). For example, Maps, distance, units, and your settings for Mail, Calendar, Stocks, and weather.
App layout on the Home screen
Clock face settings, including your current watch face, customizations, and order
Dock settings, including the order, whether you sort by favorites or recents, and available apps
General system settings, such as brightness, sound, and haptic settings
Health and Fitness data, such as history, awards, Workout and Activity calibration data from your Apple Watch, and user-entered data (To back up Health and Fitness data, you need to use iCloud or an encrypted backup on your computer.)
Learn how your Apple Watch data is backed up and what the backup includes.
support.apple.com