Why is my iPhone 16 battery health declining despite conservative charging habits?

If you are at 96% after a year, you are doing great.

Batteries degrade over time with usage due to chemical aging, that's just how they work.

You can expect about a 1% drop per 50 charge cycles with average use on an iPhone. This is an approximation, that is why it may be plus or minus a few percent on a month to month basis.

Apple recommends replacing it when the battery health reaches 80%. To check your battery health, go to Settings > Battery > Battery Health.

iPhone Battery Replacement.

iPhone Battery Replacement - Apple Support

About Lithium Ion Batteries

iPhone battery and performance - Apple Support (IN)

Here are some tips on maximizing battery life.

Batteries - Maximizing Performance - Apple

I'm not sure why you think 4% a year is dropping fast. At that rate, it would take you 5 years to reach 80%

But if it continue to drop that fast won’t it reach the 80% faster than it’s supposed to?

Your battery is doing great....much better than average.

You should send flowers to Apple.

Don't try to babysit the battery. Just replace it when it is down to 80% Battery Health in 5 years or so. Most users are lucky to get 3 years on a battery.