Preheat oven to 350 degrees F. Spray a 2 quart baking dish with nonstick cooking spray.
Cook the cubed potatoes in boiling, salted water until fork tender; drain well.
In a saucepan, melt butter over medium heat; add flour, and stir for 1 minute.
Slowly add milk while whisking constantly.
Add cubed Velveeta and cubed or shredded cheddar cheese, stirring constantly until the cheese is melted and the sauce thickens. Add black pepper and stir.
In the prepared dish, layer cooked potatoes, cubed ham and cheese sauce in several layers. Stir lightly if needed.
Sprinkle the top lightly with paprika if desired.
Bake for 25 to 30 minutes or until bubbly and hot.