Health Indices (HIs) summarize degradation from operational data and support diagnostic and prognostic tasks in Prognostics and Health Management (PHM). Their usefulness depends on capturing degradation and interpreting system condition. Autoencoders learn such representations from unlabelled monitoring data; however, when training is driven only by reconstruction, the physical meaning of latent variables remains undefined, limiting their interpretation and diagnostic value. This work proposes a physics-constrained autoencoder that embeds system knowledge as an inductive bias in the decoder architecture and as a learning bias in the loss function. The decoder contains differentiable physical equations that receive latent variables and operating conditions as inputs, structurally guiding each latent variable to represent a predefined physical quantity and enabling component-level analysis before aggregation into a system-level HI.The methodology is benchmarked on the N-CMAPSS dataset against alternative representations. Reconstruction reaches an $R^2$ of 0.9993 and an MAE of 0.0036, comparable to fully data-driven models. After operating-condition correction, the inferred physical quantities track degradation, and their aggregation produces an HI with a Spearman correlation of 0.9791 with the ground truth, an RMSE of 0.0286, and an MAE of 0.0233. The methodology is further evaluated using a single model trained across four datasets representing distinct degradation scenarios. This model preserves component-level signatures that distinguish compression-side from expansion-side degradation without diagnostic labels.Finally, the proposed framework enables degradation trends to be visualized on component maps, providing a health representation in a form familiar to engine operators and domain experts.

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