Melt butter in a skillet over medium-low heat. Add flour; cook and stir until foamy, about 2 minutes. Let cool. Whisk in milk over medium heat until smooth. Stir in 1 1/2 cup Italian cheese blend, onion, and paprika until melted and smooth. Season sauce with salt and pepper. Cook over low heat, stirring occasionally, until flavors combine, about 5 minutes.
Divide potatoes between two 8x12-inch cake pans. Pour 1/2 of sauce over each pan; stir to coat.
Bake in the preheated oven until bubbly and hot, about 1 hour. Top pans with remaining 1/2 cup cheese; bake for an additional 5 minutes.
