I think there is great misunderstanding about how Long Term Injured Reserve works.  Certain internet jackasses recently proved this point.  Just yesterday I realized I was totally wrong about the mechanics of it, so I'm going to try to share this knowledge as succinctly as possible.

I  LTIR Rules and Regulations

All references are from the NHL CBA on page 227.  This is Page 245 of the NHL CBA .pdf file which is found here, courtesy of the NHLPA.

Okay, Simon Gagne breaks his leg.  What happens now?

50.10 Player Injuries, Illnesses, Suspensions.

(a) All Player Salary and Bonuses paid to Players on an NHL Active Roster, Injured Reserve or Non Roster that are Unfit to Play - being either injured or suffering from an illness - shall be counted against a Club's Upper Limit, Actual Club Salary and Averaged Club Salary....

In simple terms, the NHL doesn't care if Gagne's leg fell off, until he retires his salary counts against the Cap.

However, the NHL isn't going to punish a team for having their player's leg fall off.

50.10 (d)

Bona-Fide Long-Term Injury/Illness Exception to the Upper Limit

Three paragraphs later the CBA explains the exception to the Cap for some players who are incapacitated.

The first requirement for Gagne to meet the conditions under Paragraph D requires that Gagne become injured to the extent that

...the Club's physician believes*... that the Player, owing to either an injury or an illness, will be unfit to play for at least (i) twenty-four (24) calendar days, and (ii) ten (10) NHL Regular Season games...

Okay, so we've got Gagne and his broken leg.  The CBA tells us in 50.10(a) that his salary still counts against the cap.  Now in 50.10(d) it tells us there is relief, but only if Gagne will be unavailable for BOTH 24 days and 10 games.

His broken leg means he'll miss that time.  What other conditions are there?

[picking up right where the last block left off, with "ten (10) NHL Regular Season games"] and such Club desires to replace such player

So the relief only exists when the team wants to replace the player who is unavailable for at least 24 days and 10 games.

What is the relief?

the Club may add an additional Player or Players [a team can replace with multiple players if it previously had extra roster space, in addition to Player X]  to its Active Roster, and the replacement Player Salary... may increase the Club's Averaged Club Salary to an amount up to and exceeding the Upper Limit [restricted by the conditions below].

Okay, makes perfect sense:  Gagne got hurt and can't play for a month?  You can replace him with Player X.

But here's the first major point of confusion, which will later lead to a bigger point:  Gagne's salary is still counted against the Cap, but Player X's salary can put the team over the cap.

So what are the conditions?

50.10(d)

(i) [The team has to notify the NHL in writing that they intend to use this exception before they can do it].

Simple enough, the team can't wait for the NHL to call and tell them they're over the cap, they've got to notify the NHL of what they are doing.

(ii) The Player Salary and Bonuses of the Player that has been deemed unfit-to-play shall continue to be counted towards the Club's Averaged Club Salary...

This is actually redundant, it merely reiterates 50.10(a).

(iii) The total Replacement Player Salary and Bonuses for a Player or Players that have replaced an unfit-to-play Player may not in the aggregate exceed the amount of the Player Salary and Bonuses of the unfit-to-play Player who the Club is replacing.

So, wherever we're going here, we can't put Darryl Powe on LTIR, then trade for Michael Nylander, and say "Replacement Player, it's all cool!"

(iv) The [Replacement Player's cap hit] may be added to the Club's Averaged Club Salary until such time as the Club... reaches the Upper Limit.  A Club may then exceed the Upper Limit due to the addition of replacement Player Salary... provided... that

What's the catch?

... when the unfit-to-play Player is once again fit to play [which includes when the now healthy player goes out on a Conditioning Assignment], the Club shall be required to once again reduce its Averaged Club Salary to a level at or below the Upper Limit prior to the Player being able to rejoin the Club.

So, Gagne's out for a month, the Flyers can go get Michael Nylander.  But as soon as Gagne's leg heals, they've got to get back under the cap.

II Application

So here's the thing I was confused about:  LTIR money doesn't come off the cap, it goes over it.  But it only goes over it when necessary.

So the Flyers' cap hit today includes Simon Gagne's salary.  This is why Hockey Buzz lists the Flyers payroll as $1.2 million over the Upper Limit right now.**

What does that mean?   Well, for starters, it means there is no reason to waive Riley Cote.  If the Flyers got rid of Riley Cote, they're not actually saving salary.  Right now, the Flyers are $1.2 over the cap. Waiving Riley Cote tomorrow means they'd be $700k over the salary cap anyway.

When Simon Gagne gets healthy, they'll be fine because I believe Betts and Powe are qualified for LTIR.  When the three are all healthy, they'll still be okay because Emery is on LTIR with his $1.5m salary.  But if no one else is hurt, when Emery gets healthy (not when the Flyers are ready to put him back in the lineup), they would have to get under the cap by shedding $1.2mil in payroll.  Backlund should be gone as soon as Leighton gets to Philly, and that's $800k off the cap number right there, then one of the forwards to the AHL gets the Flyers under the cap.

III Two Interesting Notes About LTIR

These are going to be out of order from the CBA.  First, paragraph (v) tells us that LTIR can be invoked retroactively.

A Club may elect to replace a Player who is unfit to play under this [LTIR Exception] at any point during the period that he is unfit to play, and any days and games missed... prior to the election of [LTIR] shall retroactively count toward the missed [24 days and 10 games].

Second note which is particularly important given the Olympic break:

To the extent any Player who is unfit-to-play becomes fit to play during the period of the Roster Freeze... the provisions of this section... requiring a Club to come back into compliance with the Payroll Range shall supersede the provisions of Article 13 restricting transactions during the Roster Freeze.

The effect this has on the Flyers is that Ray Emery will have to be dealt with before the Olympics are over.

* - This sentence actually reads (in the NHL CBA, a publicly available legal document which sets out the operating guidelines for a multi-billion dollar organization) "...such that the Club's physician believes, in his or her opinion, that the Player...."  Which begs the question: What if the Team Physician doesn't believe his own medical opinion?

** - It appears Hockey Buzz has removed Mike Rathje from the cap calculation.  Technically, as you can see above, the Flyers are $4.7m over the cap.  But Hockey Buzz lists Rathje in the bottom section of the page, away from the NHL Roster.