In terms of communicating with laypeople, I don't think this is a hill worth dying on. "Confabulating" is not a term I think that many people outside of the fie

In terms of communicating with laypeople, I don't think this is a hill worth dying on. "Confabulating" is not a term I think that many people outside of the field of psychology are familiar with in the first place. If you do want to use another term for laypeople, I think "bullshitting" or "BSing" would have connotations that are more relevant than "hallucinating".